Bank Austria Real Estate Country Facts Austria:
Austrian real estate market booming
- Austrian market for commercial real estate very attractive – record volume for commercial real estate investments in 2014 could be beaten again in 2015
- Sharp drop in yields demonstrates appeal of Austrian real estate market
- Housing: moderate increase in rents compared to real estate prices – growth in residential property prices flattens off in Vienna
- Office market: new construction activity at low level again – pipeline filling up
- Top shopping centres gear up for digital consumer society – gap between good and less good shopping centres continues to widen
According to Reinhard Madlencnik, Head of Real Estate at Bank Austria, "The Austrian real estate market is booming. This is confirmed by the sharp decline in prime yields, which in the office sector for example have reached the 4.5 percent mark." He added that "There is no shortage of finance in Austrian real estate. The banks are providing loans and competitive pressures have risen. We are doing well with new business, and are on track to match the record volume achieved last year of EUR 3.2 billion."
"The fact investors have a strong interest in the Austrian real estate market is evident not just in the lower yields but also with the investment volume. The results of the first six months in 2015 were slightly under the first half-year in 2014, but the incredibly full pipeline means the record volume from 2014 of roughly EUR 3 billion is at least likely to be reached again, if not exceeded", added Karla Schestauber, real estate analyst at Bank Austria.
Bank Austria optimistic for near future
"Prime yields (just under 5 percent in the shopping centre segment, just under 6 percent for retail parks) could certainly still fall some more", revealed Madlencnik and Schestauber optimistically. "As long as the interest rates remain so low and especially the gap to government bond yields and real estate yields remains wide, investors will be unable to pass up on real estate as an investment category." Economic policy intervention or a rise in interest rates could pose a risk for this positive development at the long end of the cycle. "This is why we still recommend that our clients hedge at least the interest rate risk", explained Madlencnik.
Increase in residential property prices levels off in Vienna, growth in rest of country picks up
When compared to the fundamentals indicator of the Austrian National Bank, prices on the Austrian residential property market were undervalued in the first quarter of 2015 by 1 percent. While the indicator signalled that residential property in Vienna was still overvalued by 19 percent, the situation has eased somewhat since the middle of 2014. At any rate, no significant price correction is expected on the Vienna real estate market. All told, the rise in real estate prices in Vienna has steadily lost pace since peaking in 2012, while the price growth throughout the rest of Austria has accelerated.
In recent years, rents have been a driver of inflation in Austria. From 2004 to 2014, consumer prices rose by 23 percent according to the harmonised, internationally comparable definition, with the rent component increasing by 37 percent. The rent increase in Austria accelerated some more in recent years, from an average 2.7 percent until 2013 to roughly 4 percent in 2014 and 5 percent in the first seven months of 2015. Austrian rents have also risen faster in comparison to other Western European countries. "Adjustments to the higher real estate prices on the non-regulated rental housing market are likely to have been instrumental in the process of Austrian rents decoupling from the Western European average from 2009 or so. What is more, the supply gap in the lower-rent residential segment has grown, not least because more funding was used for housing renovations, which in turn resulted in rental adjustments", analysed Schestauber. "By international comparison though, the total accommodation cost load of Austrian households remained favourable, despite the sharp rise in rents", added Madlencnik.
Viennese office property market: new construction activity at low level again
The Viennese office property market is still one of the most stable office markets in Europe, and in comparison to other European countries boasts a moderate vacancy rate of 6.5 percent. This trend is supported by the comparatively low new production of office space. Throughout 2015 the volume of new constructions will probably total just short of 130,000m², thereby posting another record low. That said there are many projects in the pipeline for the coming years, which means we can again expect a marked increase in new construction activity from 2017 at the latest.
Top shopping centres gear up for digital consumer society
As of the end of June 2015 there were roughly 127 shopping centres available for shoppers in Austria with a lettable space of approximately 2.7 million m². This corresponds to an increase in space of around 2.4 percent compared to the previous year. "There are essentially two reasons for the subdued growth in new space: firstly, Austria has a high saturation rate with shopping centres and is clearly above the EU average. Secondly, the federal states are increasingly stringent when it comes to issuing planning permission for new developments and expansion projects", analysed Schestauber.
Including all of the new space, Vienna had 31 shopping centres by the end of June 2015 with lettable space of roughly 982,000 m². The SC density per 1,000 inhabitants totalled roughly 546 m², a marked increase compared to end-June 2014 (528 m² per 1,000 inhabitants) thanks to new space added amounting to around 50,000 m² (ÖBB BahnhofCity, Citygate and expansion of Auhofcenter). What is remarkable is that the six largest shopping centres in Vienna have undergone radical modernisation, expansion or relaunches in the last five years, or have been completely rebuilt. Yet this trend is not limited to the largest shopping centres alone, it reflects the entire market. Online retail and the influence of the new digital consumer society have driven this development. Online retail has also resulted in the gap between the well-performing shopping centres and the less well performing ones widening more quickly.
UniCredit Bank Austria Media Relations
Martin Kammerer, Tel.: +43 (0) 5 05 05-52803;